The UK’s Prudential Regulation Authority (PRA) has published a consultation paper setting out its expectations on firms and the Society of Lloyd’s in relation to changes to internal models and extensions to the scope of internal models that have been approved under Solvency II.

It is relevant to insurance firms with an internal model approval under Solvency II. It may also be of interest to UK insurance firms seeking approval to use an internal model in the future and also to UK subsidiaries of EEA or non-EEA groups.

The proposals contain the PRA’s expectations on firms in relation to:

– changes to internal models

– changes to the policy for changing the internal model

– and extensions to the scope of internal models

PRA expectations

The PRA said it expects firms – in most circumstances – to submit no more than one model change application per year.

This application may comprise several individual major changes (and include any extensions of scope of the internal model) which will be reviewed together under the same supervisory approval process.

The PRA has said it will adopt the same supervisory approval process for: model change applications in respect of individual major changes; major changes triggered by an accumulation of minor changes; and extensions of the scope of the internal model (eg to cover new business units or risks). The applications to apply changes to the policy for changing the internal model will be subject to a standalone review process.

The PRA welcomes views on this consultation by Friday 5 August 2016. Please address any comments or enquiries to CP19_16@bankofengland.co.uk.